Getting ready for the AP Macroeconomics exam? These 20 free practice questions cover the big ideas from every unit of the course, from GDP and unemployment to monetary policy and exchange rates, each with a clear explanation. Try each question on your own first, then tap Show answer to check your thinking.
The questions are written in the style of the multiple-choice section of the exam. They’re a quick way to find out which units you’ve mastered and which ones need more review.
What the AP Macroeconomics exam covers
- Basic Economic Concepts: scarcity, opportunity cost, production possibilities, comparative advantage and supply and demand
- Economic Indicators and the Business Cycle: GDP, unemployment, inflation, price indices and the phases of the business cycle
- National Income and Price Determination: aggregate demand and supply, the multiplier and fiscal policy
- Financial Sector: money, banking, interest rates, monetary policy and the loanable funds market
- Long-Run Consequences of Stabilization Policies: the Phillips curve, deficits and debt, crowding out and economic growth
- Open Economy: the balance of payments, exchange rates and how international trade and finance affect the economy
How to use these questions
Work through the questions without notes, the way you would on test day. Keep track of the ones you miss, and note which unit each one comes from. Two or three misses in the same unit is a sign to review that unit before moving on.
Don’t just check whether you got the right letter. Read every explanation, even for questions you answered correctly. Macroeconomics questions often test whether you can follow a chain of cause and effect, such as how a policy change moves interest rates, spending and output, not just whether you know a definition.
Practice questions
Question 1
Which of the following would most likely shift a country’s production possibilities curve outward?
A. A decrease in the unemployment rate
B. A new technology that raises productivity in both industries
C. An increase in the price of consumer goods
D. A natural disaster that destroys many factories
Show answer
Answer: B. An outward shift means the economy can produce more of both goods, which requires more resources or better technology. A drop in unemployment moves the economy from a point inside the curve toward the curve, but it doesn’t shift the curve itself. A natural disaster would shift it inward.
Question 2
In one year, an economy has the following data: consumption of $800 billion, gross private investment of $200 billion, government purchases of $250 billion, government transfer payments of $100 billion, exports of $120 billion and imports of $150 billion. What is GDP?
A. $1,220 billion
B. $1,250 billion
C. $1,320 billion
D. $1,520 billion
Show answer
Answer: A. GDP equals C + I + G + (X minus M): $800 + $200 + $250 + ($120 minus $150) = $1,220 billion. Transfer payments are left out because they don’t pay for newly produced goods or services. A common trap is adding imports instead of subtracting them.
Question 3
A recent college graduate turns down two job offers while she keeps searching for a position that better fits her skills. How is she classified?
A. Structurally unemployed
B. Cyclically unemployed
C. Frictionally unemployed
D. Not in the labor force
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Answer: C. She is without a job and actively searching, so she is unemployed. Because she is between jobs and looking for a good match, this is frictional unemployment. Structural unemployment would mean her skills don’t match the jobs available, and cyclical unemployment is caused by a recession.
Question 4
A small economy has 150 adults. Of these, 114 are employed, 6 are unemployed and actively looking for work, and the rest are not looking for work. What is the unemployment rate?
A. 4%
B. 5%
C. About 5.3%
D. 25%
Show answer
Answer: B. The labor force includes only people who are employed or unemployed and looking: 114 + 6 = 120. The unemployment rate is 6 divided by 120, which is 5%. The 30 people who are not looking aren’t in the labor force, so dividing by all 150 adults (4%) is the common mistake.
Question 5
The marginal propensity to consume is 0.8. If business investment spending increases by $20 billion, what is the maximum possible increase in real GDP?
A. $16 billion
B. $25 billion
C. $80 billion
D. $100 billion
Show answer
Answer: D. The spending multiplier is 1 divided by the marginal propensity to save. With an MPC of 0.8, the MPS is 0.2, so the multiplier is 1 divided by 0.2, which equals 5. A $20 billion increase in spending times 5 gives a maximum increase of $100 billion.
Question 6
A sharp, unexpected increase in the price of oil affects the whole economy. In the short run, what happens to the price level and real GDP?
A. The price level falls and real GDP rises
B. The price level rises and real GDP falls
C. Both the price level and real GDP rise
D. Both the price level and real GDP fall
Show answer
Answer: B. Oil is a key input, so higher oil prices raise production costs and shift short-run aggregate supply to the left. The price level rises while real GDP falls, a combination called stagflation. Choices C and D describe shifts in aggregate demand, not supply.
Question 7
In the money market, what is the effect of an increase in the nominal interest rate?
A. The money demand curve shifts to the right
B. The quantity of money demanded decreases
C. The money supply increases
D. The quantity of money demanded increases
Show answer
Answer: B. The nominal interest rate is the opportunity cost of holding money, because money held as cash or in a checking account earns little or no interest. When the interest rate rises, people hold less money and more interest-earning assets. This is a movement along the money demand curve, not a shift of it.
Question 8
The government increases its budget deficit and pays for it by borrowing. In the loanable funds market, what is the most likely short-run result?
A. The demand for loanable funds increases, the real interest rate rises and private investment falls
B. The supply of loanable funds increases and the real interest rate falls
C. The demand for loanable funds decreases and private investment rises
D. The real interest rate is unchanged because only the central bank sets interest rates
Show answer
Answer: A. Government borrowing adds to the demand for loanable funds, which raises the real interest rate. A higher real interest rate makes borrowing more costly for businesses, so private investment falls. This effect is called crowding out.
Question 9
Expansionary fiscal policy increases aggregate demand in an economy that starts at full employment. In the short run, the economy most likely moves
A. down and to the right along the short-run Phillips curve, with lower inflation and higher unemployment
B. to a new long-run Phillips curve that is farther to the left
C. up and to the left along the short-run Phillips curve, with higher inflation and lower unemployment
D. along a vertical line, with higher inflation and no change in unemployment
Show answer
Answer: C. When aggregate demand rises, firms produce more and hire more workers, so unemployment falls, while the price level rises faster. On the short-run Phillips curve, that is a movement up and to the left. The long-run Phillips curve is vertical at the natural rate and doesn’t shift from a demand change like this.
Question 10
Many more tourists from Japan begin visiting the United States. In the foreign exchange market for U.S. dollars, what is the most likely effect?
A. The demand for dollars increases, and the dollar appreciates relative to the yen
B. The supply of dollars increases, and the dollar depreciates relative to the yen
C. The demand for dollars decreases, and the dollar depreciates relative to the yen
D. The dollar’s value does not change because tourism is not counted in trade
Show answer
Answer: A. Japanese tourists need dollars to spend in the United States, so they exchange yen for dollars. That increases the demand for dollars, which raises the dollar’s value, so the dollar appreciates relative to the yen. Spending by foreign tourists counts as a U.S. export of services.
More practice from the AP+ workbook
These next 10 questions come straight from our AP+ Review Workbook, with the same explanations you’ll find in its answer key.
Question 11
If two countries specialize according to comparative advantage, a mutually beneficial terms of trade must
A. equal the higher opportunity cost.
B. fall between the two opportunity costs.
C. equal the lower opportunity cost exactly.
D. be set by absolute advantage only.
Show answer
Answer: B. Each side must pay less than its own opportunity cost. For both countries to gain, each must get the imported good for less than it would cost to make it at home, so the terms of trade must fall between the two countries’ opportunity costs.
Question 12
Nominal GDP is $660 billion and the GDP deflator is 110. Real GDP is
A. $726 billion
B. $550 billion
C. $660 billion
D. $600 billion
Show answer
Answer: D. Real GDP equals nominal GDP divided by the GDP deflator, times 100: ($660 billion divided by 110) times 100 = $600 billion. A deflator above 100 means prices are higher than in the base year, so real GDP must be smaller than nominal GDP.
Question 13
A worker who has stopped looking for work because she believes no jobs are available is classified as
A. not in the labor force.
B. structurally unemployed.
C. unemployed.
D. employed part-time.
Show answer
Answer: A. To count as unemployed, a person must be actively searching for work. Without an active search, she is not in the labor force. Discouraged workers like her are one reason the unemployment rate can understate how weak the job market is.
Question 14
Which is an example of discretionary fiscal policy rather than an automatic stabilizer?
A. Income-tax collections fall as incomes fall.
B. Unemployment insurance payments rise in a recession.
C. Food-assistance enrollment rises in a downturn.
D. Congress passes a temporary tax rebate after a recession begins.
Show answer
Answer: D. A new law passed in response to economic conditions is discretionary fiscal policy. The other three choices happen automatically under existing law as the economy changes, which is what makes them automatic stabilizers.
Question 15
An economy is in an inflationary gap and policymakers do nothing. In the long run,
A. LRAS shifts right to meet current output.
B. nominal wages and input prices rise, shifting SRAS left.
C. AD automatically shifts right.
D. the price level falls back to its original level.
Show answer
Answer: B. When output is above potential, labor and other inputs are in short supply, so nominal wages and input prices rise. That shifts SRAS to the left until output returns to full employment, at a higher price level.
Question 16
When market interest rates rise, the prices of previously issued fixed-rate bonds generally
A. fall.
B. rise.
C. stay the same.
D. equal face value immediately.
Show answer
Answer: A. Bond prices and interest rates move inversely. Once new bonds pay a higher rate, an older bond with a lower fixed rate is less attractive, so its price must fall before anyone will buy it.
Question 17
In a hypothetical system with a 25% reserve requirement, a bank receives a new $4,000 deposit. The maximum new deposits the banking system can create from the initial excess reserves is
A. $1,000
B. $3,000
C. $16,000
D. $12,000
Show answer
Answer: D. The bank must hold 25% of $4,000, or $1,000, in required reserves, leaving $3,000 in excess reserves. The money multiplier is 1 divided by 0.25, which equals 4. So the maximum new deposits are $3,000 times 4, or $12,000. The $16,000 trap multiplies the whole deposit instead of only the excess reserves.
Question 18
A central bank keeps inflation at 6% for many years instead of 2%. In the long run, the unemployment rate will
A. be permanently lower than at 2% inflation.
B. equal the natural rate, as it would at 2% inflation.
C. be permanently higher than at 2% inflation.
D. fall to zero.
Show answer
Answer: B. The long-run Phillips curve is vertical at the natural rate of unemployment. Once people come to expect 6% inflation, there is no lasting trade-off, so long-run unemployment equals the natural rate at any inflation rate.
Question 19
A loan was made at a 7% nominal rate when both sides expected 2% inflation. Actual inflation turns out to be 6%. Who gains?
A. The borrower
B. The lender
C. Neither; nominal rates adjust automatically
D. Both equally
Show answer
Answer: A. Both sides expected a real interest rate of 5% (7% minus 2%). The real rate actually realized is only 1% (7% minus 6%), so the borrower repays with dollars that buy less than expected. Unexpected inflation helps borrowers and hurts lenders.
Question 20
A foreign investor buys newly issued U.S. corporate bonds. For the United States this is
A. a financial-account credit (capital inflow).
B. a current-account debit.
C. a current-account credit.
D. a financial-account debit.
Show answer
Answer: A. A foreign purchase of a U.S. financial asset brings financial capital into the United States, so it is a capital inflow. Capital inflows are recorded as credits in the financial account. The current account records trade in goods and services and income, not purchases of assets.
How did you do?
If you got 17 or more right, you have a strong foundation. Focus your review on the explanations for any you missed. If you got 12 to 16 right, you’re on track, but a few units need more practice. If you got 11 or fewer right, start with the unit reviews before doing more practice questions.
Our AP+ Macroeconomics Review Workbook covers every unit with clear summaries, worked examples, graph practice and a full-length practice exam with answers and explanations. It’s available as an instant PDF download or a paperback.
See the AP+ Macroeconomics Review Workbook →
Studying for more than one AP exam? Browse the full AP+ Exam Prep series.
Frequently asked questions
Are these questions like the real AP Macroeconomics exam?
They’re written in the style of the multiple-choice section and cover the same units and skills. Official practice materials from the College Board are also worth using alongside them.
What’s the best way to study for AP Macroeconomics?
Review one unit at a time, practice drawing and reading the key graphs, such as AD-AS, the money market and loanable funds, and do mixed practice questions regularly. Reading the explanation for every question, including ones you get right, builds the cause-and-effect reasoning the exam rewards.
When is the AP Macroeconomics exam?
AP exams are given each May. Check the College Board’s AP website for the current exam schedule.
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